A last sunset for Zombie Agreements

What is a zombie agreement?

A ‘zombie agreement’ is a term used to describe transitional instruments currently preserved under the Fair Work (Transitional Provisions and Consequential Amendments) Act 2009 (Cth).

The following agreements are zombie agreements if they were agreed prior to 2009, or between 1 July 2009 to 31 December 2009 (the bridging period):

Often, due to the legislative landscape at the time they were entered into, zombie agreements contain terms and conditions (such as overtime and penalty rates) which are less favourable to employees than those which the employees would enjoy if an enterprise agreement was made now. This is one of the key reasons contributing to the move to terminate zombie agreements still in operation.

What is changing?

To ensure employee(s) covered by zombie agreements are notified of the changes, an employer covered by a zombie agreement must give each employee who is covered by the zombie agreement written notice on or before 6 June 2023 that tells the employee(s):

1. they are covered by a zombie agreement;
2. the agreement will terminate on 7 December 2023 unless an application for an extension is made; and
3. the sunsetting process commenced on 7 December 2022.

If an employer fails to notify employees of the sunsetting of a zombie agreement, they may be subject to penalties of up to $16,500 per breach (individuals) and $82,500 per breach (company).

How does an extension work?

The new provisions allow an employer, an employee or an industrial association (entitled to represent one or more employees covered by the zombie agreement), to apply to the FWC for an extension of the default period for up to four years. The rationale behind this being that if employees are better off under a zombie agreement, they remain covered by those more favourable terms.

The FWC must (upon application) approve an application to extend the default period for a period of no more than four years for all types of zombie agreements if the FWC is satisfied it is reasonable in the circumstances to do so.

The FWC must also (upon application) approve an application for extension of the default period if it is satisfied the following circumstances apply to the relevant zombie agreement and it is otherwise appropriate in the circumstances to do so:

At this stage, there is no guidance on what the FWC will factor into its assessment of whether it is ‘reasonable in the circumstances’ or ‘otherwise appropriate in the circumstances’ to extend the default period. However, when determining applications to extend the default period, the FWC is required to publish its reasons. We expect that in the coming months an increasing number of applications will be determined and we will be able to further update employers on the FWC’s decision-making process.

Key takeaways for employers

For some employers, this change will significantly impact the terms and conditions they are required to provide to employees covered by zombie agreements, particularly where zombie agreements provide for terms and conditions that are less favourable that the applicable modern award(s).

Employers must therefore take proactive steps to minimise the impact of these new provisions. We recommend employers:

1. Notify employees in writing before 6 June 2023 that their zombie agreement will terminate unless an application for extension is made.
2. Compare the zombie agreement to the applicable modern award/s and determine whether the differences between the two are significant. If so, consider whether there may be benefit in bargaining for a replacement agreement or whether individual flexibility arrangements need to be entered into.
3. Consider whether an application for an extension needs to be made, noting that the following factors may be relevant:

– bargaining has commenced for a replacement agreement; and

– employees are better off overall under the zombie agreement in comparison to the applicable modern award.

4. If the zombie agreement does provide for favourable terms, consider whether the union or an employee will apply an extension and what steps may need to be taken to minimise any potential detrimental impact.
5. Following the termination of any applicable zombie agreement, issue new employment contracts to employees outlining their new terms and conditions of employment.

For assistance in understanding how these changes impact your business, please contact our Employment and Labour Team.